If you are investing in commodities then gold should always be your foundation. Other resources such as oil, and copper, are heavily traded around the world due to their high economic demand. During times of recession, industrial resources have less demand and will decline in value. Gold is not required for economic growth so it has a smaller downside than economic resources.
Some like to refer to gold as a type of insurance. Others have claimed that gold is a measure of fear in the markets. During a recession or at times when investors are worried about the health of the banking industry, many times investors will invest heavily in gold.
Three Reasons Gold Will Continue to Grow
- Banking Instability – Over the next several years the banking industry will continue to suffer from a lack of consumer/investment confidence. The amount of debt many of these banking institutions have taken on is quite substantial. While the economy around the world continues to suffer, the debt continues to grow on bank balance sheets. The banks have become highly leveraged. This is the primary cause of problems for the banks and countries in Europe. Historically, gold’s primary purpose has to been to protect and preserve assets during periods of economic unrest. During periods where the level of debt rises to unsustainable levels, the chances of an economic recession increase. These are beneficial to the price of gold.
- Military Conflicts – During periods of social or political unrest around the world, gold has historically ticked up in the short term during these periods. Tensions around the world are certainly higher than usual right now. At dawn on Thursday, February 24, Russian President Vladimir Putin launches an invasion of Ukraine. Russian troops bomb strategic military positions and then quickly gain ground. Ukrainian President Volodymyr Zelensky calls for general mobilization and asks for the support of the international community. Iran is continuing to work on developing a nuclear weapon causing tensions to rise inside Israel.
- Bank Policies – Central bank policies around the world are also expected to contribute to the price of gold. For many years now central banks have had access to easy money. The amount of interest being paid on the loans they take out is historically low. Printing more money has been the most common response taken during any type of economic crisis or recession. Governments all around the world have been printing more and more money. The printing of money and low interest rates are great for the price of gold.
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